Free Rider Problem
Market Failure: Public Goods
AO2
Syllabus requirement
When individuals consume a good without paying for it, making it unprofitable for private firms to supply the good.
Assessment objectives
AO2 Application and Analysis
Summary
The free rider problem occurs when people can use a good or service without paying because it is non-excludable, so private firms lack the incentive to supply it. As a result, public goods (which can often be consumed at zero marginal cost) tend to be underprovided by markets and are frequently supplied by governments to reach a higher social optimum.